Target’s headaches far from over as consumer perception plunges to 2007 level

By Andria Cheng

Target

As Target Corp.
/quotes/zigman/253872/delayed/quotes/nls/tgtTGT scrambles to salvage the damage from its credit-and-debit-card security breach, consumers’ perception of the company has plunged to a six-year low. Industry analysts say it could take months for the nation’s No. 2 U.S. discounter’s image to recover.

After the company warned last week up to 40 million card accounts may have been hacked, its customer perception level has dropped more in one day than either Sony’s PlayStation or Citibank did one week after their security breaches became public in recent years, according to consumer perception research service YouGov BrandIndex.

Since Thursday, Target’s score has dropped each day to a score of negative 19 on Monday, meaning 19% more shoppers have negative perception on the brand versus those with positive perceptions. Target is now the only one among major retailers that has a negative score, also Target’s first since the index began in June 2007, he said.

YouGov, which interviews 4,300 people every day, said it had taken PlayStation about eight weeks to recover its brand image while it took Citibank four weeks.

“It’s going to be about 12 weeks or more before Target recovers,” Marzilli told MarketWatch, adding consumers’ intention to shop at Target also has declined. “The magnitude of the drop is that much bigger. This is a pretty critical time of the year for the story to break.”

Meanwhile, there were initial signs that Target’s sales and traffic during the industry’s crucial holiday shopping weekend were hurt as a result.

This past Saturday and Sunday — along with Black Friday — had been projected as among the top three shopping days of the year as shoppers made last-minute purchases ahead of Christmas. And early research and store visits by consultant Customer Growth Partners showed while most stores did see higher traffic on Saturday from a year earlier, sales and traffic at Target, despite the company’s offer of a 10% discount to get shoppers back in its stores, was another story.

Traffic on Saturday at Target stores appeared to be down less than 5% from the same period a year earlier. Including the store’s heavily advertised 10% discount, sales were down in the low double digits from a year earlier, Craig Johnson, president of Customer Growth Partners, told MarketWatch, adding his 15-member nationwide field team did notice shoppers used more cash and other forms of credit and debit card tender while Target Redcard usage was down “sharply.” His research team said notably, not many of the company’s shoppers were aware of the card breach and thought of the 10% discount as just another Christmas sales promotion.

Investors are concerned, sending Target shares down 1.2% to be the biggest decliner in the S&P Retail Index on a day when the broader markets all turned higher.

The Redcards, which promise to give 5% discount on purchases, is one of Target CEO Gregg Steinhafel’s key tools to increase sales and compete against larger rival Wal-Mart Stores Inc.
/quotes/zigman/245476/delayed/quotes/nls/wmtWMT Redcard-purchases are estimated to represent one-fifth of the company’s total business.

Christopher Horvers at J.P. Morgan had estimated Target could see a negative comparable sales impact of as much as 0.5 percentage points this quarter because of the card breach.

Target, which first confirmed the issue on Thursday, has faced a big PR nightmare as customers flooded its Facebook and other social media pages since the news broke to complain about service gridlock. The company reportedly is now the subject of three class-action lawsuits with more than $5 million in damages being sought in the cases. Two of the cases were filed in California and one in Oregon, according to USA Today.

The company said it also has reached out to state attorneys general and invited them for a call Monday afternoon with its general counsel. It said it’s also working with the U.S. Secret Service and Department of Justice on the investigation into the malware that infiltrated its point-of-sale system. The company said it also has more than doubled the number of employees taking customer calls.

Those efforts appear to have paid off somewhat. By Monday, customers on the company’s Facebook page had taken on a much more sympathetic tone.

Target will have to make sure it turns the tide on public opinion quickly.

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About Behind the Storefront

Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.